Looming Major Correction In Stocks

Posted on Posted in Daily Blog Post


Source: Investors Intelligence

I am bullish on the stock markets long term but Now is the Time to exit at least for the next few weeks and sit tight and wait for the major correction before buying again.

There are some parallels between poker game and stock trading, but the most important you must bear in mind is definitely the concept of risk/reward. You are supposed to bet small, or fold, when the risk/reward is poor and large when the risk/reward is favourable.

The recent bullish reading on the NASDAQ 100 has hit 82% (February 26th) was the highest readings in history.... The chart above shows the stock market bears have fallen to historical levels not seen since 1987. So, now is the time to either bet small or fold.

Four sentiment indicators are now in extreme territory rarely seen in combination throughout history:

1. Investors Intelligence Sentiment

Advisory sentiment, as measured weekly by Investors Intelligence, is currently at its highest level since February 1987 with bulls at 59.6% and bears at 14.1%. The spread between bulls and bears of 45.5% is higher than 96% of historical data points.


2. AAII Sentiment

Individual investor sentiment, as measured weekly through the AAII survey, is at its highest level since January 2011 with bulls at 55.1% and bears at 18.5%. The spread between bulls and bears of 36.6% is higher than 93% of historical data points.


3. NAAIM Sentiment

Active manager sentiment, as measured weekly through the NAAIM survey, is showing one of the highest readings in its history. At nearly 100%, the current reading is higher than 98% of historical data points and is reflecting a nearly fully invested position (a reading of 100% reflects a 100% long position) among active managers.


4 CBOE Equity Put/Call Ratio

Options market sentiment, as measured daily through the ratio of puts (bearish bets) to calls (bullish bets), is currently showing one of the lowest levels in history. A 10-day moving average of the equity put/call ratio is at its lowest level of the year, lower than 97% of historical occurrences. Traders and investors have had little incentive to buy puts to hedge their gains as declines in 2013 have been few and far between (only one pullback greater than 5% in the S&P 500).


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